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Insurance: Tips of the Trade (Part 2 of 2)

Paul Partyka |

CHICAGO — As a self-service laundry owner, “wearing different hats” is part of the game. How much emphasis one puts on the different aspects of the business is a judgment call. However, one can’t dispute the importance of protecting his business.Insurance may not be a “flashy” subject to some owners, but its importance cannot be stressed enough. Are you comfortable with your insurance knowledge? Are some things about your policy confusing, but you don’t ask questions because time is in short supply?Two insurance representatives offer a bit of advice.THREE AREAS OF CONCERNThere are three main areas that most Laundromat owners overlook when purchasing insurance, says Larry Trapani, The Laundromat Success Program. These areas are tenant improvement coverage, workers’ compensation insurance and business-interruption insurance.“If you only protect the washers and dryers, your business could be in serious risk,” Trapani cautions.Tenant improvement coverage. Trapani has known many owners who have made claims without this coverage. “Their businesses were devastated. This is, by far, the most overlooked coverage.“Basically, besides the washers/dryers, you may have a large investment in improving the space you rent. You may install wall covering, concrete platforms for the units, and a new plumbing or electrical system. Basically, anything that you pay for that becomes permanent to the building is considered ‘tenant improvements.’”He has seen some owners add more than $100,000 of improvements to their space.If you buy an existing store and don’t invest in improving the space, “tenant improvements,” in most cases, is not your responsibility — it’s the landlord’s concern, Trapani advises.“Having said that, it is important to check your lease! Most leases don’t hold the tenant responsible, but there are a few out there that do. Either way, it’s best you know before the loss.”Workers’ compensation insurance. As primarily a cash business, many owners succumb to the temptation to pay their workers “off the books,” he says. This can save on taxes, insurance costs and other expenses. The drawback to this is that it is illegal, and in the event of an employee injury, not only would the employer be responsible for paying medical bills and lost wages, but there could be heavy fines by the state insurance department, Trapani says.“I advise all my clients to pay their workers on the books and carry workers’ compensation insurance. Another issue regarding paying workers ‘off the book’ is that many states are cracking down on undocumented workers.” As the undocumented-worker issue grows as a political issue, expect to see more regulating authorities, such as Homeland Security, getting involved, he adds.Business-interruption insurance. This covers continuing expenses, such as loans payable, rent, salaries, etc., if you are shut down after a covered loss, he explains. It also covers any lost profit you would have made if the loss did not occur. “Most standard policies cover business-interruption insurance.”The way most insurance companies settle these claims is to verify expenses and profits by looking at the financial and tax records. The problem usually occurs when the financial records (tax returns) do not accurately reflect “reality,” Trapani notes.“Again, as a cash business, profits and some expenses are sometimes hidden and not shown on any financials. I had a client who paid all his expenses in cash, including rent, and could not substantiate any continuing expenses. Needless to say, the client was not happy with his business-interruption payout.”Most leases require the tenant to pay rent even if a fire makes the space uninhabitable, he adds. “While you may save some money up front [by not having this coverage], you could be out of business for over six months. Not collecting what you should for business-interruption coverage could mean the difference between reopening your Laundromat or not.”When it comes to insurance, there’s the old expression: “Being penny-wise and pound-foolish.” In this case, saving money up front can lead to higher costs in the long run, he says.“Put your workers on the books, carry workers’ compensation insurance and report your income. This will ensure that your business will be safe from fines, uncovered claims, and you will collect if you had a loss.“Let a professional insurance agent who specializes in Laundromats review your insurance, and protect your investment and business when it needs it the most.”If you have any questions or comments about this story, contact Larry Trapani at 888-997-9801, ltrapani@brookswaterburn.com.Click here to read Part 1 of this story.

About the author

Paul Partyka

American Coin-Op

Paul Partyka was editor of American Coin-Op from 1997 through May 2011.

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